More Significant Than Rate Cuts – Fed’s March Meeting Focuses on "QT Pause" Window

TradingKey — As Trump’s tariff policies rattle U.S. economic growth prospects and market confidence, the Federal Reserve’s March policy meeting has become a focal point for investors. Beyond Chair Jerome Powell’s remarks and the quarterly "dot plot," whether the Fed will end its quantitative tightening (QT) program is drawing significant attention.

On March 19, the Federal Reserve will announce its policy decision. Economists and market traders widely expect policymakers to keep the benchmark interest rate unchanged at 4.25% – 4.50%.

With a rate hold nearly certain, markets hope Chair Powell will deliver reassuring comments addressing the balance between inflation and employment risks, as well as a clearer outlook for eventual rate cuts.

Currently, uncertainties stemming from Trump’s tariffs, U.S. government efficiency department layoffs, and spending cuts are fueling economic headwinds. Rising risk aversion has pushed the S&P 500 into correction territory.

Powell has previously stated that it is the net impact of Trump's policy changes that will matter for the economy and for the path of monetary policy.

QT Pause Window Opens

Minutes from the January meeting revealed that policymakers discussed pausing or slowing the Fed’s balance sheet reduction until the debt ceiling issue is resolved. 

Analysts suggest the March meeting could mark a critical juncture for tapering QT or halting balance sheet contraction.

The Fed’s QT aims to transition bank reserves from "excessive" to "ample" levels while avoiding liquidity shortages—a lesson learned from the 2019 cash crunch, when overnight repo rates spiked dramatically.

Earlier this year, Bank of America and Goldman Sachs projected the Fed might slow QT by May, while Deutsche Bank pointed to July as a likely timeline.

Blake Gwinn, head of U.S. rates strategy at RBC Capital Markets, recently stated that the Fed could pause QT months after raising the debt ceiling and rebuilding the U.S. Treasury’s General Account (TGA).

Gwinn noted that this might occur as early as May, but waiting until June risks delaying action until the TGA balance drops too low. However, he emphasized there’s no reason not to get the process underway in March.

The analyst argued that the case for March action is bolstered by the Fed’s prior discussions on the topic, allowing policymakers to pause QT now and resume later if needed.

Gwinn believes the Fed may frame this decision as a technical adjustment rather than a response to economic deterioration.